[ForexNews]

Nonfarm payrolls fell 247k in July, a smaller decline than consensus (-325k) estimates, while the unemployment rate fell to 9.4% from 9.5%, in contrast to consensus estimates of a 0.1pp increase. The report showed a significant rise in manufacturing production. Overall, we view it as a clear signal that the economy was emerging from the recession in July.

In addition to the smaller decline in payrolls in July, there was a net upward revision of 43k to payroll growth over the previous two months. The most encouraging sector was manufacturing, where job losses eased to -52k from -131k and the workweek rose to 39.8 from 39.5; overall manufacturing hours worked rose 0.4%, the first increase since November 2007. Construction sector job losses edged down to -76k from -86k, while service sector job losses moderated to -119k from -220k in June. Temporary help job losses edged down to -10k from -31k, and the leisure and hospitality sector added 9k jobs, the second rise in the past three months. Aggregate hours worked were unchanged in July, the first time this series has not declined since February 2008. The workweek ticked up to 33.1 from 33.0, as we had expected.

The unemployment rate fell to 9.36% on an unrounded basis from 9.51% in July. The drop was mainly due to a fall in the labor force participation rate to 65.5% from 65.7%. Still, we view the drop in the unemployment rate as very encouraging compared with the 0.4-0.5pp monthly increases that were occurring earlier in the year.

Average hourly earnings rose 0.2% in July and increased 2.5% y/y in July, down from 2.7% in June. While wages are decelerating, the trend is still firmly in positive territory.